Minnesota Attorney General Lori Swanson has revived her call for ending automatic temporary rate hikes while utilities wait for a final rate decision, saying customers got overcharged $177 million over the past five years.

The money was refunded to consumers — with interest — but it was not money consumers would have chose to give up, Swanson said.

“It’s the consumers essentially loaning money to the utilities,” Swanson said Monday, Dec. 31. “It’s really giving the benefit of the doubt to the utilities.”

According to an analysis by the attorney general, public utilities have collected $525 million in interim rate increases since 2008, but the final increases approved by the Minnesota Public Utilities Commission were for only $348 million — resulting in the refunds.

The elimination of the automatic interim hike would put Minnesota in line with at least 18 other states, the attorney general said.

In a rate case currently under way, Xcel Energy, the state’s largest utility, was granted a 9 percent, or $251 million, interim rate increase for 2013, beginning in January.

Minneapolis-based utility Xcel is seeking a permanent rate hike of 11 percent for the year, or nearly $285 million. In its last completed rate case, Xcel asked for $198 million for 2011 and 2012 combined, but was granted only $72.8 million for the same two-year period.

As a result, Xcel’s residential customers were due an average refund of about $30 per household because the temporary rates they paid exceeded the final decision.

Xcel issued a statement Monday saying that the current interim rate law provides good protection to consumers because they get their money back with interest, an argument echoed by the state’s other rate-regulated utilities.

The idea of interim rate increases arose because in rate cases, it’s not uncommon for the PUC to take 10 to 14 months to reach a final decision on a proposed increase.

State law directs the PUC to grant an interim or temporary rate increase while it conducts a full examination — which includes months of testimony before a judge and reams of documentation.

In rare cases, the PUC has decided “exigent circumstances” exist to lower a utility’s interim rate increase. That occurred to Duluth-based Minnesota Power for 2010.

Minnesota Power that year was seeking a rate increase of $81 million — which it later reduced to about $72 million — and it asked for an interim increase of $72 million, utility executive vice president Dave McMillan said.

The PUC used the “exigent circumstance” clause to give it a lower interim increase of $48 million.

In the end, Minnesota Power got a final increase of $53 million. But the utility appealed its interim increase award.

That case is now before the Minnesota Supreme Court. The utility has collected a portion of the $5 million it believes it is owed from 2010, but the fate of the balance will depend upon the Supreme Court’s ruling.

McMillan said he understands how rate cases look like classic horse-trading negotiations with utilities asking for more than they really need and regulators like the attorney general offering low-ball offers, but he said that’s not the case.

The commission weighs evidence that comes out of the testimony and documentation, with each side making its case, he said.

Swanson tried to get the state Legislature to change the law on interim rate increases in 2010, but her proposal was stripped out of a bill on utility regulations and never acted upon.

Swanson’s proposed changes, which will be introduced when the state Legislature reconvenes Jan. 8, would force utilities to make a case “that an immediate and compelling necessity exists for an interim increase,” a reverse of the current system.

But the state’s largest utilities say that if they could not collect the interim rate while their requests were being studied, consumers might end up paying even more than they do now.

Without interim increases bringing in money to account for cost increases, CenterPoint, which supples natural gas to Minnesota customers, would have to borrow money from banks while their rate case was being decided, spokeswoman Rebecca Virden said.

That would end up being more expensive for ratepayers, Virden said. “It’s like saying, ‘Let’s put it all on a credit card,’ ” she said.

In CenterPoint’s last rate case in 2008, the Houston-based utility asked for a rate increase of $59.8 million and received an interim increase of $51.2 million, she said. The PUC granted a final rate increase of $40.8 million.

Under the attorney general’s proposal, utilities could not have recovered $348 million in costs ultimately found to be reasonable, Otter Tail Power spokeswoman Cris Oehler said. The Fergus-Falls-based utility serves northwest Minnesota and parts of North Dakota and South Dakota.

“Interim rates are necessary to prevent increased risk of under-recovery on reasonable investments and the resulting higher financing costs and rates that would benefit no one,” Oehler said.

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